RICH PICKINGS: Side dishes for fat cats

The high calibre investors behind Krispy Kreme would be disappointed their punt didn't work out, but Australia's rich have a long history of interesting side-bet investments that have produced stellar results.

There are many lessons from the collapse of Krispy Kreme Australia.

Fads never last. American imports don’t always find favour in Australia. In retail, getting good locations is everything.

But for the wealthy, the big lesson is a bit different – not every little investment works out as planned.

From a rich watcher's point of view, what’s interesting about the collapse of Krispy Kreme is the calibre of investors who got involved, led by chief executive John McGuigan, the Millner family’s Souls Private Equity and, most notably, John Kinghorn.

Kinghorn is best known as the founder of RAMS Home Loans. He’s valued at $398 million on this year’s BRW Rich list, a great deal of which came from the $850 million he received through the float of RAMS in 2007.

That deal is remembered as an exquisite bit of timing, for Kinghorn at least – within weeks of the company hitting the boards it had been crippled by the credit crisis and was sold off to Westpac at a bargain-basement price.

Kinghorn was one of the original shareholders in Krispy Kreme, which launched in 2003, but would appear to be the biggest investor. Indeed, since at least the start of the year Kinghorn has acted as the company’s financial lifeline, keeping the business afloat as it tried to turn its fortunes around.

Industry estimates suggest he has poured millions into the business in recent months, although Krispy Kreme says Kinghorn, as the company’s secured creditor, is supportive of the move to appoint administrators and try to implement a restructure.

While Kinghorn will be hoping the restructure is successful, like many wealthy investors who dabble with small investments in numerous companies, Kinghorn would know that you can’t win them all.

As well as his Krispy Kreme investment and a 10 per cent stake in the listed RHG Home Loans, Kinghorn has investments in national real estate group LJ Hooker, mining company White Energy and US-based supply chain financier, Orbian Corporation.

Of course, Kinghorn isn’t the only wealthy entrepreneur who likes to dabble in smaller investments outside their core business – the rich list is littered with entrepreneurs who spend a few million or a few hundred thousand backing SME ventures.

In some cases, it’s driven by personal connections. In others, it’s driven by support for a cause, such as environmentalism. In some instances, entrepreneurs genuinely want to support an up and coming business and its people with much-needed growth capital.

Let’s take a look at some of these rich side-bets:

James Packer

The Packer family has been in and out of smaller companies for years, and still retains shares in a women’s fashion group (Pretty Girl Fashion) and a cosmetics brand (Jurlique). However, one of Packer’s sharpest deals was buying a stake in PC Tools, the business started by fellow rich list member Simon Clausen. When Clausen sold out for $200 million in 2008, Packer’s take was estimated at $50 million.

Kerry Stokes

Seven Group chief Kerry Stokes took a punt on mining junior Iron Ore Holdings way back in 2007, spending $12 million to get a controlling stake. Back then, the shares were listed at 40c; today they are at $1.71. The shares were previously held in Stokes’ private investment vehicle, Australian Capital Equity, but since the merger of ACE and Seven Network, they are now contained in the listed Seven Group.

Gerry Harvey

While the bulk of Gerry Harvey’s billion dollar fortune is tied up in Harvey Norman, he does have a number of side investments, most prominently the Magic Millions thoroughbred auction house and two horse studs. However, one of his lesser known punts is on an agribusiness company called Security Foods, which breeds, produces and sells premium Wagyu beef. He owns the business with Dr John Griffiths, a veterinarian and a long-time business associate.

Lang Walker

Property billionaire Lang Walker usually sticks pretty closely to his core sector, but one slightly unusual investment he has is a 65 per cent stake in a company called Bremer Park, which is a manufacturer of hardboard products. There is a connection though – Bremer Park is also involved in a joint venture with Walker’s property group Walker Corporation. The project is a business park near the Queensland town of Ipswich.

Gordon Merchant

Billabong founder Gordon Merchant is a long-time shareholder in British-listed, Australian-based company Plantic, which develops and manufacturers biodegradable plastic products. The company is listed on London’s Alternative Investment Market, but in July Merchant launched a takeover bid valuing the company at $10.2 million.

Chris Morris

Computershare founder Chris Morris is one of the biggest dabblers on the rich list. In addition to his large stake in Computershare and a quickly-growing pub empire, Morris owns a large stake in boutique brewer Empire Beer Group, web services company Webfirm, and Melbourne-based software-as-a-service company Qdos. The latter shows how important connections are for entrepreneurs seeking funds – Morris got to know the Qdos owners because he works in the same building as them, and had seen their product in a wine business he purchased.

Jan Cameron

The bulk of Kathmandu founder Jan Cameron’s wealth is contained in her Retail Adventures group, which includes chains such as Sam’s Warehouse, Crazy Clarke’s and Go-Lo. But Cameron retains stakes in several companies in New Zealand, where she has spent the bulk of her business life. The most prominent are two retail businesses that compete in the baby and children’s wear space – Postie Plus and the well-known brand Pumpkin Patch.


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